Last week after the DNC, I heard an interview that I found quite disturbing. CNBC asked people in the audience a simple question, “If President Obama outlawed profits in corporations, would you support him?” To my surprise HALF of the people said YES!
Regardless of who you are supporting in this election, I am concerned that people can be so brainwashed to think the USA can survive without corporations making profits. I wanted to use this blog entry to outline the need for profits and how it can hurt us if we don’t have them.
First, we have all heard about the drought in the Midwest and how it has hurt the corn crop. Some think this only hurts the farmers and Government subsidies will help them. Well in the spirit of football season, what about all the sport bars that sell chicken wings and nachos? Chickens eat corn and nachos are made from corn chips! If restaurants like Buffalo Wild Wings weren’t allowed to make profits, then they would have to charge more for their food to cover costs. To me, food has a value. I will pay $8-$10 for 6 wings, but I certainly will not pay $16. If corporations have profits, they can create the nest egg to help them cover costs during years like this, so that they are able to keep prices the same for us. We all know the middle-class that everyone always talks about can’t afford to pay more for chicken!
Second, profits allow for innovation and expansion. By the way, expansion means new buildings, which need people to work in them…I think that is called job creation? Analysts always ask Apple why they can sit on so much profit and the answer is because it allows them to take risks and innovate. Though it seems silly now, the iPod, iPhone, and iPad products were all HUGE risks. Now we know they changed the world, but Apple could not have invested so much in R&D if they were not sitting on profits from other products. The priority of Apple and all companies should be that they have the money to pay their employees and keep the company alive. They cannot do this without profits. Those who try end up being bailed out by our Government, which is another problem.
Finally, if corporations were not able to make profit, the entire stock market wouldn’t exist. If companies aren’t making money, then what incentive would we have to invest in them? This would affect more than the super rich, it would affect EVERY ONE of us. Those who have retirement plans, where do you think that money is being held? Where do those returns come from? Take some time, visit your HR person, and ask to see your 401k. I promise that a major percentage of your portfolio is made up of corporate stocks. Even those who work for the Government have a 401k or another type of retirement plan that has equities. I promise it is not all T-bills or other types of interest bearing bonds. Oh wait, if corporations have no profits, then they would have no reason to innovate, thus they would have no need to sell corporate bonds. I sure hope you all enjoy investing in Government because that’s all that would be left. Personally, I like investing in things that WORK for me.
Even those of us who work for nonprofits or apply for grants will be affected. Where does the money for the endowments and foundations come from? I was reading about a college endowment the other day who said the endowment grew at least 7% per year. That money isn’t just in a savings account. In fact, if you ask, most endowments will gladly show you their portfolio. Guess what…it includes equities, which are based on corporate profits!
Again, this isn’t directed to the Democratic Party or President Obama. It is also not a support statement for Mitt Romney. I do not really like either one of them because I know my interests will be ignored by both. It is a statement of concern for the well being of this Country. If we ever get to the point where corporations cannot make profits, then we’re in trouble. I would probably buy a nice coat and move to Canada!